Post on 13-Oct-2020
______________________ * Principal, Brent Fisse Lawyers, Sydney; Adjunct Professor of Law, University of Sydney; Consultant,
Asian Development Bank; brentfisse@gmail.com; www.brentfisse.com. Thanks are due to Caron
Beaton-Wells and other colleagues for comments on an earlier draft. The usual disclaimers apply.
THE AUSTRALIAN COMPETITION POLICY REVIEW FINAL REPORT 2015
SIRENS’ CALL OR LYRE OF ORPHEUS?
NZ Competition Law & Policy Institute
26th
Annual Workshop
Auckland, 16 October 2015
Brent Fisse*
I Introduction
1. The Competition Policy Review Final Report (March 2015) (Harper Report)1 makes
many significant recommendations on Australian competition policy, law and
institutions. Are they reasonably fit for purpose?2
2. The Competition Policy Review (Harper Review) is a major milestone in Australian
competition law. It has been heralded by the Government as a so-called ‘root and
branch’ review that will help to spur the economy.3 The last comprehensive review
was undertaken in 1993 (the Hilmer Review).4 The Dawson Review in 2003 was
selective.5 Piecemeal amendments to the Competition and Consumer Act 2010 (CCA)
have since proliferated.6 Decisions of the High Court of Australia on the CCA are rare
and some have raised more issues than they have resolved.7
3. Before the change in leadership of the Coalition Government in mid-September 2015,
the Government’s formal response to the Harper Report was expected in October
1 Available at http://competitionpolicyreview.gov.au/.
2 The criterion of fitness for purpose is used in the Harper Report itself at 23.
3 The Coalition’s Policy for Small Business (August 2013) 2. A very short time frame was allowed for
this broad review. 4 National Competition Policy (1993), at
http://ncp.ncc.gov.au/docs/National%20Competition%20Policy%20Review%20report,%20The%20Hil
mer%20Report,%20August%201993.pdf 5 Review of the Competition Provisions of the Trade Practices Act (2003), at
http://tpareview.treasury.gov.au/content/report.asp. For largely critical commentaries see ‘The Dawson
Review’ (2003) 9(1) UNSW LJ Forum. 6 See eg Competition and Consumer Amendment Act (No 1) 2011 (No 2) 2011; Trade Practices
Amendment (Cartel Conduct and Other Measures) Act 2009; Trade Practices Legislation Amendment
Act (No 1) 2006. 7 See eg News Ltd v South Sydney District Rugby League Football Club Ltd (2003) 215 CLR 563; Rural
Press Ltd v ACCC (2003) 216 CLR 53; K McMahon, ‘Competition Law, Adjudication and the High
Court’ (2006) 30 Melb Univ LR 782.
2
2015.8 Negotiations with the States and Territories were planned to start then (the
intergovernmental Conduct Code Agreement 1995 obliges the Government to consult
with, and seek the approval of, the States and Territories on proposed changes to Part
IV of the CCA). The Harper Report recommends that exposure draft legislation be
prepared within 12 months of accepting the recommendations in consultation with
States and Territories and that finalised amendments be put to the States and
Territories for their approval within two years.9
4. The future of the Harper Report recommendations is uncertain. First, the
recommendation that an effects test be introduced in s 46 was attacked by the
Business Council of Australia and others and initially the Government seemed to back
away from that recommendation.10
However, the new Prime Minister (Malcolm
Turnbull) appears to support the introduction of an effects test.11
Secondly, inducing
the States and Territories to approve the Harper recommendations for changes to Part
IV of the CCA is unlikely to be a fast or smooth process. Unlike the position at the
time of the Hilmer Report in 1993, much work has yet to be done to induce the
agreement of the States and Territories.12
5. The review to follow is limited to competition law issues and is selective. The areas
discussed are:
Competition law simplification (Section II)
Misuse of market power (Section III)
The substantial lessening of competition test (SLC test) (Section IV)
Cartels (Section V)
Mergers (Section VI)
Intellectual property (IP) and competition law (Section VII)
8 See ‘Bruce Billson strikes back at BCA over effects test backlash’, AFR 4 August 2015. The new
Treasurer, Scott Morrison, is reported as saying that the Government’s response will now be provided
‘hopefully before Christmas’, AFT 17 Oct 2015. 9 Harper Report, 29.3.
10 ‘Effects test debate is too theological, Abbott says’, AFR 9 Sept 2015, 9; ‘Cabinet split over business
crackdown’, AFR 1 Sept 2015, 1. Alan Fels, a former Chairman of the ACCC, believes the Harper
reforms are likely to be dead if the effects test recommendation is rejected: ‘Harper review blocked by
government’s incapacity for reform’, AFR 4 Sept 2015, 39. 11
‘Malcolm Turnbull woos nationals with competition backflip, up to $4b deal’, AFR 16 Sept 2015. 12
See ‘Harris wants action on Harper review’, AFR 22 Sept 2015, 7; P Harris, ‘Reviving Harper’,
Australian Competition Policy Summit 2015, Sydney, 22 Sept 2015, at: http://www.pc.gov.au/news-
media/speeches/competition-policy-summit-2015.
3
Remedies, sanctions and enforcement (Section VIII).
6. Other areas of competition law are addressed in the Harper Report. They include:
exclusive dealing and third line forcing,13
access,14
crown liability15
and
authorisation.16
Regrettably, the Report does not seek to review corporate liability or
ancillary liability.17
7. Much of the Harper Report is concerned with competition policy.18
The areas covered
include:
Regulatory restrictions
Infrastructure markets
Human services
Competitive neutrality
Government procurement and other commercial arrangements
Key retail markets (supermarkets, fuel retailing)
Informed choice.
The discussion of competition policy in the Harper Report is beyond the scope of the
present review.
8. The Report also makes recommendations on institutions and governance. Competition
and consumer functions should be retained within the single agency of the ACCC
(Recommendation 49). Access and pricing functions should be transferred from the
ACCC and the National Competition Council (NCC) and be undertaken within a
single national Access and Pricing Regulator (Recommendation 50). The NCC should
be dissolved and an Australian Council for Competition Policy (ACCP) established,
with a mandate to provide leadership and drive implementation of the competition
policy agenda (Recommendations 43-47). Two specific functions of the ACCP would
be to undertake advocacy and to conduct market studies (Recommendations 44-45).
13
Recommendations 33, 32. 14
Recommendation 42. 15
Recommendation 24 (ss 2A, 2B and 2BA of the CCA should be amended so that the competition law
provisions apply to the Crown in right of the Commonwealth and the States and Territories (including
local government) in so far as they undertake activity in trade or commerce). 16
Recommendation 38. 17
See further C Beaton-Wells and B Fisse, Australian Cartel Regulation (2011) chs 6, 7. 18
Part 3.
4
Many of these recommendations are controversial, several are opposed by the ACCC,
and their acceptance by the Government is uncertain.
II Competition Law Simplification
Harper Report recommendations
9. Two main recommendations in the Harper Report address the need for simplification
of the CCA:
Recommendation 22 — Competition law concepts
The central concepts, prohibitions and structure enshrined in the current competition law
should be retained, since they are appropriate to serve the current and projected needs of the
Australian economy.
Recommendation 23 — Competition law simplification
The competition law provisions of the CCA should be simplified, including by removing
overly specified provisions and redundant provisions.
The process of simplifying the CCA should involve public consultation.
Provisions that should be removed include:
• subsection 45(1) concerning contracts made before 1977; and
• sections 45B and 45C concerning covenants.
10. Other recommendations also pursue simplification. These include the proposed
changes to the CCA provisions relating to cartels (see Section V below), exclusive
dealing (including third line forcing)19
and authorisation.20
The Model Legislative
Provisions for Part IV of the CCA in Appendix A to the Report reflect the Review
Panel’s views on simplifying Part IV.
Comments - simplification21
11. The Harper Report recommendations on simplification are welcome. The CCA has
been widely criticised by lawyers and businesses for being complex, prolix,
duplicative and over-prescriptive.22
The schizophrenic drafting style of the CCA also
19
Recommendations 33, 32. 20
Recommendation 38. 21
Some of the comments below are adapted from B Fisse, ‘Competition, Fairness and the Courts’ (2014)
39 Australian Bar Rev 101. 22
See eg Justice S Rares, ‘Competition, Fairness and the Courts’ (2014) 39 Australian Bar Rev 79.
5
stands out:23
principles-based drafting is widely used in the Australian Consumer Law
but rarely elsewhere in the Act (the core SLC test in ss 45, 47, 50 and 50A in Part IV
is the most notable exception).
12. Undue complexity and over-prescription are to be avoided. These are the reasons
given by Justice Rares of the Federal Court of Australia in his plea for simplification
of the CCA:24
First, attempts at codification involving many permutations on a theme are inevitably
complex and likely to miss something, secondly, complexity can, and often is a
handmaiden of incomprehensibility, thirdly, the unravelling of complexity requires
time and effort, fourthly, the more detailed and complex legislation is, the harder it is
for the ordinary person, including the scions of the business community, to grasp the
point and comply, fifthly, complexity makes litigation more complex, lengthy and
expensive for the parties and, sixthly, those factors create the need for the Courts to
deal with more and more in judgments or summings up to juries leading to delay, the
greater likelihood of appellate challenges and, of course, error.
13. Simplicity is an important criterion for assessing the effectiveness of competition
legislation. Equal prominence should be given to other criteria, most notably the need
to avoid legislative overreach, underreach and uncertainty. Overreach, underreach or
uncertainty can and often does arise from complex, prescriptive legislation. However,
these unwanted effects may also arise from simple legislative wording.
14. There are limits to the extent to which principles-based drafting can usefully be
taken.25
It may not be possible or desirable to avoid prescriptive drafting in some
contexts. For example, prescriptive drafting may be appropriate in the setting of
powers of investigation where principles-based drafting may give investigators too
much rein or give their targets too little guidance about their rights. There are also
contexts where bright-line rules may be more efficient than principles. For instance,
the related corporation exceptions under s 44ZZRN and s 45(8) of the CCA turn on
the prescriptive definition of a related corporation in s 4A.26
As a result, these related
corporation exceptions are clear-cut as compared with their counterparts under US
23
See D Heydon, ‘Is the Competition and Consumer Act 2010 (Cth) in Competition with Itself ?’,
Competition Law Conference, Sydney, 4 May 2013. 24
‘Competition, Fairness and the Courts’, 82. 25
See further J Black, ‘Forms and Paradoxes of Principles-Based Regulation’, LSE Law, Society and
Economy Working Papers 13/2008, at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1267722 26
Cf Commerce Act 1986 (NZ) s 7.
6
and EU competition law. The meaning and scope of the single economic enterprise
principle under US and EU competition law is the subject of a large body of case law
and ongoing contention.27
Swapping s 44ZZRN or s 45(8) for the much less
determinate US or EU single economic enterprise principle would have little
attraction.
15. As a test of what principles-based drafting means and is capable of achieving, it is
worth considering the state of the SLC test under s 45(2). That test is a prime example
of principles-based drafting. Has it worked well? The test remains uncertain partly
because the ACCC has not brought many SLC cases and Australian courts have not
done much to explicate the concept of substantiality. See further Section IV below.
16. At the level of corporate compliance programs, the technicality of the CCA generally
does not matter much because compliance programs set out basic rules, Dos and
Don’ts, and Q&A at a relatively simple level suitable for use by non-lawyers. These
instructions often seek also to cover in general terms the common elements or
underlying principles of the competition laws in all countries where the corporation
operates.28
This is an example in the context of price fixing:
Dos
Do act independently of competitors at all times.
Do steer well clear of any discussion with a competitor about anything to do with
prices.
Do get advice in advance from the Legal Team if you are ever in doubt about the
legality of a discussion or proposed arrangement with a competitor.
Do get clearance in advance from the Legal Team for any proposed joint venture or
other alliance with a competitor.
17. The Model Legislative Provisions are set out to show what the Review Panel intends
by simplification but, in the opinion of this reviewer, are a let-down:
27
See PE Areeda and H Hovenkamp, Antitrust Law: An Analysis of Antitrust Principles and Their
Application (2003) ¶1462–¶1478; J Joshua, ‘Single Continuous Infringement of Article 81 EC: Has the
Commission Stretched the Concept Beyond the Limit of its Logic?’ (2009) 5(2) European Competition
Journal 451; I Bailey, ‘Single overall agreement in EU Competition Law’ (2010) 2 Common Market
Law Review 473. 28
See eg ABB, Antitrust guidance note, Competitive intelligence gathering versus commercially sensitive
information exchanges (2014) at:
http://www02.abb.com/global/abbzh/abbzh252.nsf/0/df9558e3445cf87ac12577e900589252/$file/Antitr
ust+Guidance+Note_Competitive+Intelligence+vs+Commercially+Sensitive+Information.pdf
7
The drafting style remains influenced by the recoco school that produced Part
IV of the CCA;
the proposed joint venture exemption preserves the obscure term ‘joint
venture’ and introduces a tangle of conditions (see paragraphs 57-59 below);
the proposed supply agreement exemption (s 45J in the Model Legislative
Provisions) is unduly complicated29
- compare the cleaner cut of the proposed
s 32 exemption under the Commerce (Cartels and Other Matters) Amendment
Bill:
45J Restrictions in supply and acquisition agreements
(1) Sections 45C, 45D, 45G and45H do not apply in relation to a contract, arrangement or
understanding containing a cartel provision in so far as the cartel provision:
(a) is imposed by a person (the supplier) in connection with the supply of goods or
services to another person (the acquirer) and relates to:
(i) the supply of the goods or services by the acquirer to the acquirer [sic];
(ii) the acquisition by the acquirer of goods or services that are substitutable for
or otherwise competitive with the goods or services from others; or
(iii) the supply by the acquirer of the goods or services or goods or services that
are substitutable for or otherwise competitive with the goods or services;
(b) is imposed by a person (the acquirer) in connection with the acquisition of goods
or services from another person (the supplier) and relates to:
(i) the acquisition of the goods or services from the supplier; or
(ii) the supply by the supplier of the goods or services, or goods or services that
are substitutable for or otherwise competitive with the goods or services, to
others.
the proposed model provisions on exclusive dealing (s 47) do not reflect
Recommendation 33 that there be no separate prohibition of exclusive dealing.
18. The Harper Report does not take up the possible use of filters to simplify and limit the
scope of competition law as in the way proposed by Frank Easterbrook in ‘The Limits
29
Not all complication can be avoided, including the logically prior and sometimes difficult issue of
whether or not the supplier and the acquirer are ‘competitors’ as required by the competition condition
of cartel liability; see Flight Centre v ACCC [2015] FCAFC 104 (special leave has been granted to
appeal to HCA); ACCC v ANZ [2015] FCAFC 103.
8
of Antitrust’.30
Why such abstention? Is there any reason to assume that the current
modes of assessment of anti-competitive effects are as straightforward, as efficient or
as free from risk of error as they could be?
III Misuse of Market Power
Harper Report recommendations
19. The most controversial recommendation of the Harper Report is that an effects test be
adopted in s 46. This is the recommendation:
Recommendation 30 — Misuse of market power
The primary prohibition in section 46 of the CCA should be re-framed to prohibit a
corporation that has a substantial degree of power in a market from engaging in conduct if the
proposed conduct has the purpose, or would have or be likely to have the effect, of
substantially lessening competition in that or any other market.
To mitigate concerns about inadvertently capturing pro-competitive conduct, the legislation
should direct the court, when determining whether conduct has the purpose, effect or likely
effect, of substantially lessening competition in a market, to have regard to:
• the extent to which the conduct has the purpose, effect or likely effect of increasing
competition in the market, including by enhancing efficiency, innovation, product quality
or price competitiveness; and
• the extent to which the conduct has the purpose, effect or likely effect of lessening
competition in the market, including by preventing, restricting or deterring the potential
for competitive conduct in the market or new entry into the market.
Such a re-framing would allow the provision to be simplified. Amendments introduced since
2007 would be unnecessary and could be repealed. These include specific provisions
prohibiting predatory pricing, and amendments clarifying the meaning of ‘take advantage’ and
how the causal link between the substantial degree of market power and anti-competitive
purpose may be determined.
Authorisation should be available in relation to section 46, and the ACCC should issue
guidelines regarding its approach to the provision.
30
(1984) 63 Texas LR 1. For critiques of Easterbrook’s proposed filters see O Williamson, ‘Delimiting
Antitrust’ (1987) 76 Georgetown LJ 274; R Markovits, ‘The limits to simplifying the application of US
antitrust law’ (2010) 6 Journal of Competition Law & Economics 51. On risk of error see J Baker,
‘Taking the error out of “error cost” analysis’ (2015) 80 Antitrust LJ 1. On rules v standards see D
Crane, ‘Rules Versus Standards in Antitrust Adjudication’ (2007) 64 Washington & Lee LR 49.
9
20. The ‘take advantage’ limb of s 46 would be repealed under Recommendation 30. The
take advantage test has given rise to substantial difficulties of interpretation, thereby
‘undermining confidence in the effectiveness of the law’.31
More significantly, the test
is not well adapted to identifying a misuse of market power because it takes non-
dominant firm conduct to be the benchmark for competitive behaviour:32
Business conduct should not be immunised merely because it is often undertaken by firms
without market power. Conduct such as exclusive dealing, loss-leader pricing and cross-
subsidisation may all be undertaken by firms without market power without raising
competition concerns, while the same conduct undertaken by a firm with market power might
raise competition concerns.
21. The s 46 purpose test would also be repealed. The reason given echoes a long-
standing criticism of s 46:33
.. the focus of the prohibition on showing the purpose of damaging a competitor is inconsistent
with the overriding policy objective of the CCA to protect competition, and not individual
competitors. The prohibition ought to be directed to conduct that has the purpose or effect of
harming the competitive process.
22. The Harper Report questions the utility of s 46A (misuse of market power in a Trans-
Tasman market).34
The section has rarely been invoked and its original aim is
implausible – predatory pricing in an Australian goods market by a firm with market
power in New Zealand is unlikely unless the predating firm has market power in the
Australian market. The Review Panel recommends that s 46A and the reciprocal s
36A of the Commerce Act should be reconsidered through consultations between
Australia and NZ. Relevant questions include:35
• whether the reciprocal prohibitions in the CCA and New Zealand’s Commerce Act have any
significant operative effect;
• if section 46 of the CCA is reformed in line with the Panel’s recommendation, whether the
reciprocal prohibitions in both Acts ought to be reformed in like manner; and
• if the reciprocal provisions are retained, whether they should be extended to markets involving
the supply of services.
31
Harper Report, 61. See further K Kemp, ‘Uncovering the roots of Australia’s misuse of market power
provision: Is it time to reconsider?’ (2014) 42 ABLR 329. 32
Harper Report, 61. 33
Harper Report, 61. 34
Harper Report, 19.2. 35
Harper Report, 349.
10
Comments – misuse of market power
23. The proposed effects test seeks to give the prohibition against misuse of market power
a sound economic foundation and to bring Australian law more into line with effects-
based approaches in other jurisdictions36
apart from NZ.37
However, the
recommendation has had a volatile reception38
and the degree of attention given to
this ‘totem’ of competition reform has been described by the Chairman of the
Productivity Commission as ‘absurd’.39
The main objections that have been raised
are canvassed below.
24. The other proposals in Recommendation 30 – repeal of the infamous Birdsville
amendment,40
extending authorisation to misuse of market power, introduction of
ACCC guidelines on s 46, and reconsideration of s 46A – are salutary.41
25. Some contend that removal of the need for a causal connection between the market
power and the alleged anti-competitive conduct would result in overreach. The
standard example given is the dominant firm that hires an arsonist to burn down a
competitor’s factory in order to prevent that competitor from competing effectively.
The effects test proposed in the Harper Report would not catch such a case because,
under the proposed s 46(8)(c) (as under the existing s 46(4)(c)), the conduct of the
dominant firm would not be ‘as a supplier or as an acquirer of goods or services’.
However, should liability for such conduct be precluded under s 46? Katharine Kemp
has argued that the dominant firm’s act of arson is an example of ‘plain exclusion’, a
key concern of competition law, and should fall squarely within the scope of s
46(1):42
The purpose of s 46(1) is to prevent harm to the competitive process and ultimately consumer
welfare. If a dominant firm threatens the competitive process by engaging in non-efficient,
36
For the view that the differences have been exaggerated see P Williams, ‘Should an effects test be
added to section 46’, Competition Law Conference, Sydney, 24 May 2014. 37
On s 36 of the Commerce Act see M Sumpter, New Zealand Competition Law and Policy ((2010) ch
10; L Hampton & PG Scott, Guide to Competition Law (2013) ch 6; R Ahdar, ‘The unfulfilled promise
of New Zealand’s monopolisation law: Sources, symptoms and solutions’ (2009) 16 Competition &
Consumer LJ 291; NZ Productivity Commission, Boosting productivity in the services sector (May
2014) 7.2. 38
See ‘Effects test debate is too theological, Abbott says’, AFR 9 Sept 2015, 9; ‘Cabinet split over
business crackdown’, AFR 1 Sept 2015, 1. 39
P Harris, ‘Reviving Harper’, Australian Competition Policy Summit 2015, Sydney, 22 Sept 2015, 1 at:
http://www.pc.gov.au/news-media/speeches/competition-policy-summit-2015. 40
CCA, s 46 (1AA). See B Reid, ‘Section 46 – in search of a port in the storm’ (2010) 38 ABLR 41. 41
Subject however to the question of whether or not the authorisation process is till justifiable in any
context - see paragraph 35 below. 42
‘The case against “French J’s arsonist”’ (2015) 43 ABLR 228, 244.
11
intentionally exclusionary conduct that is profitable because of its market power, it falls foul
of s 46(1), even if a non-dominant firm could, would, or does, engage in the same conduct.43
26. The US law on monopolisation and the EU law on abuse of a dominant position focus
on exclusionary conduct that is not welfare enhancing.44
In contrast, Recommendation
30 and the Model Legislative Provisions on misuse of market power require conduct
that has the purpose, effect or likely effect of substantially lessening conduct in a
market; they do not require exclusionary conduct that has the purpose, effect or likely
effect of substantially lessening conduct in a market. That gap could be filled by
adding a requirement of exclusionary conduct.45
Such a requirement would preclude
liability in cases where, for example, a dominant firm ceases production in Australia
and thereby substantially lessens competition in a market.
27. Another objection to the effects test under Recommendation 30 is that it would make
compliance with s 46 less certain.46
Unlike the current purpose test, an effects test
requires information that a corporation with market power does not readily have:47
[An effects based prohibition] requires the firm to assess the likely effect of its conduct where
it cannot have full information about the likely competitive options of other market
participants. This can have the undesirable, and potentially chilling effect of uncertainty,
leading to inaction.
A firm's conduct can have effects in downstream or upstream markets it is not active in. Here,
the firm has even less of the information required to undertake the necessary effects
assessment.
28. There is some force in this concern but it should not be overstated. Corporations with
market power are accustomed to making SLC assessments under s 45 and s 47, as
Rod Sims, Chairman of the ACCC, has emphasised.48
43
However, the conduct of the dominant firm is not as a supplier or acquirer of goods or services and
hence liability would now be excluded by s 46(4)(c). 44
See ABA, Antitrust Law Developments (Seventh), Vol , ch 2; J Faull and A Nikpay, The EU Law of
Competition (3rd ed, 2014) ch 4; R O’Donoghue & AJ Padilla, The Law and Economics of Article 102
TFEU (2nd
ed, 2013) ch 4. 45
See eg Competition Act 1998 (South Africa) s 8(c)(d); as discussed in K Kemp, ‘The South African
Example: A Legislated Effects-Based Test and Efficiency Defence for Misuse of Market Power’,
Submission to the Competition Policy Review, 29 April 2014, at
http://competitionpolicyreview.gov.au/files/2014/06/Kemp_K.pdf. 46
See eg Allens, ‘Misuse of Market Power’ (2015) at :
https://www.allens.com.au/services/comp/pdf/HarperReviewSubmission.pdf. 47
Russell McVeagh, ‘Final Report of Australian 'Root and Branch' competition review released: A
blueprint for NZ's 'bonsai' review of the Commerce Act?’ 1 April 2015, 1, at:
http://www.russellmcveagh.com/Publications/ViewPublication/tabid/176/Title/final-report-of-
australian-root-and-branch-competition-review-released-a/pid/381/Default.aspx
12
Firms large and small are subject to section 45 of the Act. This section prohibits a corporation
from making a contract, arrangement or understanding that has the purpose or likely effect of
substantially lessening competition.
This section can potentially capture conduct that is largely unilateral in nature. For example,
contracts entered into by a firm to acquire all of an input necessary for the establishment of a
major new competitor may have the purpose or effect of substantially lessening competition.
Despite the contractual element of the conduct this conduct is unilateral in nature and could be
captured by section 45. ...
The point is that firms, large and small, have for a long time been operating in an environment
where they must assess whether their conduct is likely to substantially lessen competition.
There is little or no evidence that I am aware of that operating within this law is deterring
firms, large or small, from competing aggressively.
That said, there are differences between the assessment of agreements and the
assessment of unilateral conduct:49
... cases involving agreements are different in the sense that the firms can always choose not to
make an agreement, or to make a different agreement, or amend some aspect of it to comply
with objections under competition law. The firms are also more likely to have detailed
knowledge of the effect of an agreement on their output and to be able to quantify the
synergies created by cooperation. The same cannot generally be said of most unilateral
conduct.
29. A further concern is that, although the SLC test is familiar and long-standing, the
meaning of the core concept of ‘substantial’ is vague. For instance, it is unclear what
degree of lessening of competitive rivalry is required or over what period of time the
effect or likely effect on competition needs to be assessed. The Harper Report does
not address this vagueness but would extend it to unilateral conduct. What can or
might be done to extract more clarity from the fog of ‘substantial’ is taken up in
Section IV below.
30. More fundamentally, the effects test proposed under Recommendation 30 recognises
efficiencies to the extent that they promote competitive rivalry but does not carve out
cases where efficiencies have the effect (or likely effect) of substantially lessening
competition but promote consumer welfare.50
Assume that a monopoly supplier of
48
‘Section 46: the Great Divide’, Competition Law Conference, Sydney, 30 May 2015, 6-7,
https://www.accc.gov.au/speech/section-46-the-great-divide. 49
R O’Donoghue & AJ Padilla, The Law and Economics of Article 102 TFEU (2nd
ed, 2013) 381. 50
On the limited relevance of efficiencies under the SLC test see S Corones, Competition Law in
Australia (2014, 7th
ed) [1.175]; Gilbert + Tobin, ‘Where to now for big business, small business and
market power? (2015) at:
http://ecomms.gtlaw.com.au/rv/ff001e946600b6f9cde38f2982459a1307b93802. See also R
13
rare earth materials decides to cease supplying those materials because it has acquired
a major technology manufacturer and wants to use all the rare earth materials in order
efficiently to manufacture superior high-technology products with strong export as
well as domestic potential. Assume further that the refusal to continue to supply rare
earths is likely to raise downstream rivals’ costs so considerably as to drive them out
of business over the next 18-24 months. It is difficult to see why, under the current
law on the SLC test or the mild ‘tweaking’ of that test under Harper Recommendation
30, that welfare-enhancing conduct would not entail a likely substantial lessening of
competition in the downstream markets affected.51
The process of rivalry test under
the QCMI canon is a test of competitive rivalry, not a test of consumer welfare.52
‘Competition on the merits’,53
‘normal competition’ and ‘genuine undistorted
competition’ promote consumer welfare but in some circumstances consumer welfare
may be promoted by conduct that lessens competition. The proposed ACCC
guidelines on s 46 could hardly plug the gap between the SLC test and a consumer
welfare test. Those seeking exemption in such cases would need to apply for
authorisation, a solution that is cumbersome and bureaucratic.54
By contrast, the Draft
Report55
proposed a defence requiring a corporation to prove that the conduct in
question would be: (a) a rational business decision by a corporation that did not have
a substantial degree of power in the market; and (b) likely to have the effect of
advancing the long-term interests of consumers.56
That defence was criticised in
O’Donoghue & AJ Padilla, The Law and Economics of Article 102 TFEU (2
nd ed, 2013) 430-431. An
effects test for misuse of market power has existed in the telecommunications sector under s 151AJ of
the CCA since 1997 with little apparent protest about neglect of efficiencies considerations. 51
Perhaps the monopolist's new plan might increase competitive rivalry in the market(s) for the high-
technology products and that increase might offset the reduction in competitive rivalry in the market
for the rare earth materials. However, the SLC test as currently interpreted does not support such an
offset between competition effects ine one market with those in another. Nor does the Harper proposal
for amending s 46: the revised s 46 refers to SLC ‘in that or any other market’. Thanks are due to
Katharine Kemp for these comments on the example given in the text. 52
Re Queensland Co-operative Milling Association Ltd and Defiance Holdings Ltd (1976) 25 FLR 169 at
188-189. 53
See eg R O’Donoghue & AJ Padilla, The Law and Economics of Article 102 TFEU (2nd
ed, 2013) 361-
362. 54
Note that, as is the position in the EU, the proposed block exemption mechanism would not apply to
misuse of market power. 55
Competition Policy Review Draft Report September 2014, at:
http://competitionpolicyreview.gov.au/files/2014/09/Competition-policy-review-draft-report.pdf . 56
Draft Report, Draft Recommendation 25. Compare NZ Productivity Commission, Boosting
productivity in the services sector, Report 133 (May 2014), 134.
14
submissions on various grounds including impracticality57
and was rejected in the
Final Report.
31. US antitrust law and EU competition law do not yield off-the-shelf solutions.
However, there are core principles that could be extracted and reflected in a revised s
46. Two core principles are: (a) conduct is exclusionary only if it limits production,
marketing or technical development by competitors; and (b) a dominant firm may
limit rival’s possibilities if no prejudice to consumers results.58
The resulting
legislative provisions would be high-level and their application to different particular
types of exclusionary conduct would need to be mapped out in detailed guidelines.59
The guidelines need to be drafted, debated and settled as part of the legislative
revision process. The outcome of proposed legislative reform in a difficult area
inevitably will be uncertainty and deep concern unless people can know in some
detail how the proposed legislation is likely to work in practice. This is a large task
but what is the point of proposing changes to s 46 unless the likely consequences are
understood? One reason why the Harper Report proposals on s 46 are controversial is
that no adequate proof of concept has been given. No set of worked examples has
been provided to demonstrate exactly how the SLC test is meant to work under the
proposed revised s 46 and thereby to refute the objections that have been raised.
32. The difficulty of establishing liability under s 46 has led to increased reliance on the
prohibition against unconscionable conduct (s 21 of the Australian Consumer Law) at
least in the context of dealings between supermarkets and suppliers. In proceedings
successfully brought by the ACCC against Coles Supermarkets Australia Pty Ltd in
2014,60
the Federal Court by consent made declarations that Coles engaged in
unconscionable conduct in 2011 in its dealings with suppliers. The Court also ordered
Coles to pay pecuniary penalties of $10 million. Coles also entered into a court
57
See eg Submission by the Competition and Consumer Committee of the Business Law Section of the
Law Council of Australia, 20 November 2014, 17-19, at:
http://competitionpolicyreview.gov.au/files/2014/12/LCA_Competition.pdf. On the consumer welfare
defence under Article 102 of the TFEU see R O’Donoghue & AJ Padilla, The Law and Economics of
Article 102 TFEU (2nd
ed, 2013) 5.4.3. 58
See R O’Donoghue & AJ Padilla, The Law and Economics of Article 102 TFEU (2nd
ed, 2013) 4.2.
Compare PE Areeda and H Hovenkamp, Antitrust Law (2nd
ed, 2002) ¶651a (exclusionary conduct =
acts that (1) are reasonably capable of creating, enlarging, or prolonging monopoly power by impairing
the opportunities of rivals; and (2) that either (a) do not benefit consumers at all, or (b) are unnecessary
for the particular consumer benefits that the acts produce, or (c) produce harms disproportionate to the
resulting benefits). 59
See R O’Donoghue & AJ Padilla, The Law and Economics of Article 102 TFEU (2nd
ed, 2013) chs 4-
13 for a principled and detailed analysis as one very useful input. 60
ACCC v Coles Supermarkets Australia Pty Ltd [2014] FCA 1405.
15
enforceable undertaking with the ACCC to provide redress to more than 200 suppliers
(payments totalling $12.3 million resulted).61
The Harper Report states that such cases
‘indicate that the current unconscionable conduct provisions are working as intended
to meet their policy goals’ and that ‘[i]f deficiencies in the operation of the provisions
become evident, they should be remedied promptly.’62
33. The meaning of ‘unconscionable’ in the context of dealings with consumers has been
clarified by the Full Court of the Federal Court of Australia. In ACCC v Lux
Distributors Pty Ltd, 63
a case relating to the sale of vacuum cleaners to elderly people
in their homes, it was held that a ‘normative standard of conscience’ is to be applied.
This standard does not require a high level of obloquy64
but is ‘permeated with
accepted and acceptable community values’.65
In some contexts, such values are
contestable. In this case, however, they were ‘honesty and fairness in the dealing with
consumers.’66
It remains unclear exactly what values are relevant in business to
business transactions where the prohibition against unconscionable conduct is
invoked instead of the prohibition against misuse of market power. Query whether
light on that question will be shone by the forthcoming review of the Australian
Consumer Law.67
What is needed is a review of the nature and limits of fairness as a
potential goal of, or constraint on, competition law.68
61
AFR, ‘Coles to pay suppliers $12m’, 1 July 2015, 1. 62
Harper Report, 357. 63
[2013] FCAFC 90. 64
Contrast Attorney-General (NSW) v World Best Holdings Ltd [2005] NSWCA 261 at [124]. 65
[2013] FCAFC 90 at [23]. 66
[2013] FCAFC 90 at [23]. 67
Review of the Australian Consumer Law, 12 June 2015, at:
http://www.consumerlaw.gov.au/content/Content.aspx?doc=review_of_the_acl.htm . 68
See C Beaton-Wells, ‘Substance and Process in Competition Law and Enforcement: Why We Should
Care If It’s Not Fair’; 9th
ASCOLA conference, at: http://www.ascola-conference-
2014.wz.uw.edu.pl/conference_papers/Beaton-Wells.pdf; now in P Nihoul and T Skoczny (eds),
Procedural Fairness in Competition Proceedings (2015) ; A Ayal, Fairness in Antitrust (2014). The
Harper Report does not examine the need to revise the statement of object in s 2 of the CCA; see I
Wylie, ‘Roots, branches and other objects: One step beyond the Harper Review’ (2014) 42 ABLR 436;
C Beaton-Wells, ‘The Harper Review: Qualified Hope for Australian Competition Law’ 48(4) (2015)
Australian Economic Review (forthcoming).
16
IV The SLC Test
Harper Report extends operation of SLC test without introducing rule of reason
34. The Harper Report recommendations would extend the application of the SLC test in
two important ways, namely the introduction of an effects test in s 46 (see Section II
above), and the repeal of the exemption under s 51(3) for intellectual property
licensing conditions (see Section VII below). However, little is said about the SLC
test itself.69
35. Several submissions were made for the adoption of a rule of reason test.70
Those
submissions have been rejected for reasons that are not discussed expressly in the
Harper Report. One implicit reason is that the rule of reason test is not ‘justiciable’, 71
an issue that has been resolved in Australia by making the task of assessing
efficiencies a task mainly for the ACCC in the authorisation process or the Australian
Competition Tribunal. The claim that a rule of reason is not justiciable is contestable
given the extensive US experience in applying a rule of reason. Another consideration
is the artificiality of the current limits on the extent to which efficiencies can be taken
into account when assessing anti-competitive effect.72
A related question is whether
the authorisation process should exist in a modern competition law. No equivalent
process exists in the US, the EU, the UK or Canada.73
What does ‘substantial’ mean?
36. An immediately practical question is the meaning of ‘substantial’ in the SLC test.74
The case law offers limited guidance beyond telling us that ‘substantial’ does not
69
See Harper Report, 61, 341. 70
See eg Law Council of Australia, Submission on the Competition Policy Review Draft Report,
November 2014, 25, at: http://competitionpolicyreview.gov.au/files/2014/12/LCA_Competition.pdf;
ABA, Joint Comments, Nov 2014, at: http://competitionpolicyreview.gov.au/files/2014/12/ABA.pdf . 71
See S Corones, D Merrett & D Round, ‘Building an Effective Trade Practices Commission’ (2009) 49
Australian Economic History Rev 138 at citing RB Stevens and BS Yamey, Restrictive Practices Court
(1965) 23–138, esp 41. 72
See eg P Williams & G Woodbridge, ‘The Relation of Efficiencies to the Substantial Lessening of
Competition Test for Mergers: Substitutes or Complements?’ (2002) 30 ABLR 435. Contrast the
attempt made in the Draft Report, Draft Recommendation 25, to introduce a type of rule of reason test
as a defence to misuse of market power; that proposal was rejected in the Final Report. 73
See C Beaton-Wells and B Fisse, Australian Cartel Regulation (2011) 8.13.3. 74
See B Fisse, ‘Competition, Fairness and the Courts’ (2014) 39 Australian Bar Rev 101 at 108; C
Coops, ‘Substantial lessening of competition test’, Competition Law Workshop, Adelaide, 10-11
October 2014. On the further question of ‘purpose’ see D Robertson, ‘The Primacy of Purpose in
Competition Law – Pt 2’ (2002) 10 CCLJ 11; P Scott, ‘The Purpose of Substantially Lessening
Competition: The Divergence of New Zealand and Australian Law (2011) 19 Waikato Law Rev 168.
17
mean ‘large’ or ‘big’.75
The opportunity to clarify the law was not taken by the High
Court in Rural Press Ltd v ACCC (2003) where it was stated that ‘substantial’ means
‘meaningful or relevant to the competitive process’.76
A values-based judgment is
required:77
Economic laws .. embody evaluative concepts with normative dimensions. They require more
for their interpretation and application than the mere discovery of pre-existing meaning.
Indeed, their application in particular cases almost approaches a legislative function. They
require characterisation of facts under some generic designation informed by a values-based
judgment.
37. As a result, the assessment of evidence on the issue of substantiality depends much on
impression and unstated assumptions. Many illustrations can be given. They include
the decisions in McHugh v The Australian Jockey Club78
and ACCC v Cement
Australia Pty Ltd.79
Current guidelines do not assist much on this issue.80
38. Headway will not be made by writing off the SLC test as a ‘category of indeterminate
reference’81
or by consulting a dictionary. Progress will require practical elucidation
75
Re Queensland Independent Wholesalers Ltd [1995] ATPR 41-438 at 40,926. See also Global Radio
Holdings Limited v Competition Commission [2013] CAT 26. Cf Malaysian Communications and
Multimedia Commission, Guideline on Substantial Lessening of Competition (2014) [3.5]
(‘considerable or big’). 76
(2003) 216 CLR 53 at 71 per Gummow, Hayne and Heydon JJ. Compare Commerce Act 1986 (NZ) s
2(1A) (‘substantial’ means ‘real or of substance’); Commerce Commission, Decision 638, DFS Group
Limited/The Nuance Group (28 March 2008) (lessening must be ‘considerable and sustainable’); M
Sumpter, New Zealand Competition Law and Policy ((2010) 192-196; L Hampton & PG Scott, Guide
to Competition Law (2013) 3.8-3.9; D Carlton & D Goddard, ‘Contracts and Lessening Competition:
What is Section 27 for And How Has it Been Used?’ in M Berry & L Evans, Competition at the Turn
of the Century (2003) 137; J Land, J Owens & L Cejnar, ‘The Meaning of “Competition”’ (2010) 24
NZULR 98. 77
Justice RS French, ‘The Role of the Court in Competition Law’ (2005) 2 at:
http://www.austlii.edu.au/au/journals/FedJSchol/2005/4.html. 78
[2012] FCA 1441. For a rule of reason analysis of this case, see S Quo, ‘”Flogging a dead horse”:
Artificial insemination, breeding standards and antitrust’ (2014) 42 ABLR 367. 79
[2013] FCA 909. 80
See eg ACCC, Merger Guidelines (2008) [3.5] (The precise threshold between a lessening of
competition and a substantial lessening of competition is a matter of judgement and will always depend
on the particular facts of the merger under investigation. Generally, the ACCC takes the view that a
lessening of competition is substantial if it confers an increase in market power on the merged firm that
is significant and sustainable. For example, a merger will substantially lessen competition if it results in
the merged firm being able to significantly and sustainably increase prices) at:
https://www.accc.gov.au/publications/merger-guidelines; Commerce Commission, Agreements that
Substantially Lessen Competition (2012) (‘[i]f the difference between the level of competition in the
market with and without the agreement is considered to be substantial, the agreement will be illegal’ )
at: http://www.comcom.govt.nz/business-competition/fact-sheets-3/slc-agreements/. 81
Compare J Stone, Legal System and Lawyers’ Reasonings (1964) 263-7.
18
of the test. An instructive start has been made by Tom Leuner.82
Leuner’s analysis is
animated by this premise:83
.. it is better to understand and debate the fundamentals of the effects will meet that standard,
than to rely upon the vagaries of instinctual responses to competition law. Although many
commentators debate the possible causes of competition effects and the factors that play a role
in assessing the likelihood of competition effects, there is a need to focus on what will
ultimately be indicative of a breach.
39. The following basic issues arise:84
does the SSNIP hypothetical monopolist test for market definition have any
bearing on the test for substantiality?
what is the necessary duration of competition effects required under the SLC
test?
is the SLC test to be applied by reference to the competitive process and/or
outcomes such as price effects?85
if measured by price effects, what is the threshold? 5%?86
is the type of product in itself a dimension of substantiality?
is the size of the industry affected (or the amount of commerce affected)
relevant to the assessment of substantiality?
is the proportion of customers affected in the market a relevant dimension?
are changes to margins or profitability relevant?
is the standard of substantiality lower where the conduct is deliberately anti-
competitive?
does the standard of substantiality vary in accordance with the probability of
the competition lessening effects?
82
T Leuner, ‘Time and the dimensions of substantiality’ (2008) 36 ABLR 327. 83
Leuner, 365-366. 84
Leuner, 348-359. 85
For the argument that the SLC test under s 27 of the Commerce Act is concerned with the process of
competition and not the effects of competition see J Land, J Owens & L Cejnar, ‘The Meaning of
“Competition”’ (2010) 24 NZULR 98, 106-109 (an increase in prices may be an indication that
competition has been lessened in a market but it is not itself an aspect of lessening of competition; a
lessening of competition is determined by whether there is a lessening of the level of constraints on
market power). 86
In Commerce Commission v Woolworths Ltd & Ors (2008) 12 TCLR 194 (CA) at [191] the Court of
Appeal said that there is no precise metric.
19
40. Leuner advocates guideline thresholds on: (a) the degree of harm to competition; (b)
the critical duration of harm to competition; and (c) the probability of harm to
competition.87
The thresholds suggested as a starting point are: (a) a price increase
threshold of 5%; (b) a critical duration threshold of 18 months; and (c) a probability
threshold of 30%. Leuner concedes the difficulty of trying to measure any of the
dimensions of substantiality precisely but contends that an approximate framework of
the kind suggested is ‘a roadmap of what a substantial lessening of competition looks
like’ and ‘will assist the development of more consistent decision-making and
hopefully lead to more debate in relation to the underlying policy issues.’ 88
41. ‘Truncated’ rule of reason analysis is sometimes used in the US as an alternative to
full-blown analysis of competition effects and off-setting efficiencies.89
Much more
commonly, rules of thumb are used to map out safe harbours.90
For instance,
exclusive dealing is not unlawful in the US unless a ‘substantial’ part of the market is
affected and rules of thumb are often used to help gauge what is meant by
‘substantial’:91
In general, exclusive dealing will not be found illegal under U.S. antitrust law if it does not
foreclose more than 30% of all effective distribution channels. However, exclusive dealing
affecting more than 30% of all effective distribution channels is neither automatically nor
even presumptively illegal. Indeed, in most instances, foreclosure must be above 50% in order
to raise any competitive concern.
Such an approach is a boon for those who want an expedient navigational aid to guide
compliance.92
42. Market share thresholds are a feature of the safe harbours provided under several EU
block exemptions, including those relating to technology transfer agreements, vertical
restraints and horizontal cooperation agreements. For example, under the technology
87
Leuner, 359-365. 88
Leuner, 363. 89
See further T Muris & B Cummins, ‘Tools of Reason: Truncation Through Judicial Experience and
Economic Learning’ (2014) (Summer) Antitrust 46. 90
Bright-line rules may be appropriate when used as safe harbours rather than as prohibitions: see D
Crane, ‘Rules Versus Standards in Antitrust Adjudication’ (2007) 64 Washington & Lee LR 49, 84. 91
US Department of Justice and US Federal Trade Commission, Exclusive Dealing/Single Branding
(response to ICN questionnaire), at:
http://www.internationalcompetitionnetwork.org/uploads/questionnaires/uc%20pp/us%20response%20
exclusive%20dealing.pdf. See further ABA, Antitrust Law Developments (Seventh) (2012) Vol 1 211-
220. In practice such rules of thumb are often used notwithstanding the much purer ‘qualitative
substantiality’ test laid down in Tampa Electric Co v Nashville Coal Co, 365 US 320 at 329 (1961). 92
Contrast the very different perspective in R Trindade, A Merrett & R Smith, ‘2014 – The Year of SLC’
(2014) 21(2) The State of Competition.
20
transfer block exemption, a market share threshold of 20% applies in the case of
agreements between competitors and a market share threshold of 30% in the case of
agreements between non-competitors.93
Case by case rule of reason assessment is
required outside the safe harbours. The fact that market shares exceed a threshold
does not give rise to any presumption of liability.94
43. The market share rules of thumb approach illustrated above does not seem legitimate
under the SLC test in Australia given that the test is not cast in terms relative to the
total competition in a market. In Dandy Power Equipment v Mercury Marine95
Smithers J adopted this restrictive interpretation:
Although the words ‘substantially lessened in a market’ refer generally to a market, it is the
degree to which competition has been lessened which is critical, not the proportion of that
lessening to the whole of the competition which exists in the total market. Thus, a lessening in
a significant section of the market, if a substantial lessening of otherwise active competition
may, according to circumstances, be a substantial lessening of competition in a market.
44. The Harper Report does not discuss the possibility of recasting the SLC test in ways
that clarify what amounts to anti-competitive conduct. As a result we are left with a
SLC test that is vague and conducive to potential overreach. The proposed block
exemption mechanism (Recommendation 39) could well be used to provide safe
harbours96
in some contexts but their intended nature and scope is far from clear. This
is unfortunate in several respects including the possibility of sector-specific rules that
violate the Hilmer principle that competition laws should apply across the board
without fear of or favour to lobbying or other sectoral interests.
93
Commission Regulation (EC) No 772/2004 on the application of Article 101(3) of the Treaty to
categories of technology transfer agreements, OJ 2004 L123/11 (TTBER). See further J Faull and A
Nikpay, The EU Law of Competition (3rd
ed, 2014) ch 10C. Market share thresholds are also used in
Eurpean Commission, Notice on agreements of minor importance which do not appreciably restrict
competition under Article 101(1) of the Treaty on the Functioning of the European Union (De Minimis
Notice)(2014/C 291/01). 94
See further J Faull and A Nikpay, The EU Law of Competition (3rd
ed, 2014) 10.119-10.122. 95
[1982] ATPR 40,315 at 43,888. 96
As used in the EU for technology transfer agreements; see J Faull and A Nikpay, The EU Law of
Competition (3rd ed, 2014) 10.119-10.123. The Harper Report suggests the possible creation of safe
harbours by means of a block exemption in the context of IP licensing (at 100.
21
V Cartels
Harper Report recommendations – cartels
45. Five main recommendations are made about cartel conduct:
Recommendation 27 — Cartel conduct prohibition
The prohibitions against cartel conduct in Part IV, Division 1 of the CCA should be simplified
and the following specific changes made:
• The provisions should apply to cartel conduct involving persons who compete to supply
goods or services to, or acquire goods or services from, persons resident in or carrying on
business within Australia.97
• The provisions should be confined to conduct involving firms that are actual or likely
competitors, where ‘likely’ means on the balance of probabilities.
• A broad exemption should be included for joint ventures, whether for the production,
supply, acquisition or marketing of goods or services, recognising that such conduct will
be prohibited by section 45 of the CCA if it has the purpose, effect or likely effect of
substantially lessening competition.
• An exemption should be included for trading restrictions that are imposed by one firm on
another in connection with the supply or acquisition of goods or services (including
intellectual property licensing), recognising that such conduct will be prohibited by
section 45 of the CCA (or section 47 if retained) if it has the purpose, effect or likely
effect of substantially lessening competition.
Recommendation 28 — Exclusionary provisions
The CCA should be amended to remove the prohibition of exclusionary provisions in
subparagraphs 45(2)(a)(i) and 45(2)(b)(i), with an amendment to the definition of cartel
conduct to address any resulting gap in the law.
Recommendation 29 — Price signalling
The ‘price signalling’ provisions of Part IV, Division 1A of the CCA are not fit for purpose in
their current form and should be repealed.
97
As Caron Beaton-Wells has drawn to my attention, the key question should be whether the conduct
affects or relates to economic activity in Australia, not where relevant persons are geographically
located. The term ‘carrying on business’ is not always easy to apply and the tests for jurisdiction in s 5
and for the competition condition relating to the cartel prohibitions should be consistent. The test for
the competition condition should thus require the parties to be in competition (likely competition, or
competition or likely competition but for the cartel provision) in relation to the supply or acquisition of
goods or services in trade or commerce within, to or from Australia (as suggested by the Harper Report
itself, at 362).
22
Section 45 should be extended to prohibit a person engaging in a concerted practice with one
or more other persons that has the purpose, effect or likely effect of substantially lessening
competition.
Recommendation 4 — Liner shipping
Part X of the CCA should be repealed.
A block exemption granted by the ACCC should be available for liner shipping agreements
that meet a minimum standard of pro-competitive features (see Recommendation 39). The
minimum standard of pro-competitive features to qualify for the block exemption should be
determined by the ACCC in consultation with shippers, their representative bodies and the
liner shipping industry.
Other agreements that risk contravening the competition provisions of the CCA should be
subject to individual authorisation, as needed, by the ACCC.
Repeal of Part X will mean that existing agreements are no longer exempt from the
competition provisions of the CCA. Transitional arrangements are therefore warranted.
A transitional period of two years should allow for the necessary authorisations to be sought
and to identify agreements that qualify for the proposed block exemption.
Recommendation 54 — Collective bargaining
The CCA should be reformed to introduce greater flexibility into the notification process for
collective bargaining by small business.
Reform should include allowing:
• the nomination of members of the bargaining group, such that a notification could be
lodged to cover future (unnamed) members;
• the nomination of the counterparties with whom the group seeks to negotiate, such that a
notification could be lodged to cover multiple counterparties; and
• different timeframes for different collective bargaining notifications, based on the
circumstances of each application.
Additionally, the ACCC should be empowered to impose conditions on notifications
involving collective boycott activity, the timeframe for ACCC assessment of notifications for
conduct that includes collective boycott activity should be extended from 14 to 60 days to
provide more time for the ACCC to consult and assess the proposed conduct, and the ACCC
should have a limited ‘stop power’ to require collective boycott conduct to cease, for use in
exceptional circumstances where a collective boycott is causing imminent serious detriment to
the public.
23
The current maximum value thresholds for a party to notify a collective bargaining
arrangement should be reviewed in consultation with representatives of small business to
ensure that they are high enough to include typical small business transactions.
The ACCC should take steps to enhance awareness of the exemption process for collective
bargaining and how it might be used to improve the bargaining position of small businesses in
dealings with large businesses. The ACCC should also amend its collective bargaining
notification guidelines. This should include providing information about the range of factors
considered relevant to determining whether a collective boycott may be necessary to achieve
the benefits of collective bargaining.
46. The implications of other recommendations may also be noted. The Harper Report
recommends the repeal of the prohibition of exclusive dealing conduct (s 47)
(Recommendation 33). That would entail repeal of the exemption of exclusive dealing
conduct from per se liability for cartel conduct98
(cartel cases that fall within this
exemption are subject to SLC-based liability under s 47). This exemption now
provides a useful escape route from cartel liability in situations where no other
exemption is readily available. The Report also recommends that the exemption for IP
licensing conditions under s 51(3) be repealed (see Section VII below). That is
another exemption that now provides a useful avenue of escape where no other
exemption may be readily available.
47. Passing reference only is made to the criminal prosecution of cartel conduct (there has
yet to be a prosecution) and the immunity policies of the ACCC and Commonwealth
Director of Public Prosecutions99
– see paragraph 79 below.
Comments – cartels
48. The proposed simplification (Recommendation 27) generally has been well received.
Few amendments to the CCA have been as mazy as the 2009 amendments relating to
cartels. These have been described as ‘a twenty page long labyrinth’ of ‘byzantine
complexity’.100
By contrast, the Commerce (Cartels and Other Matters) Amendments
Bill 2014 covers similar ground but in a shorter and simpler form.101
The Harper
98
CCA ss 44ZZRS, 45(6). 99
Harper Report, 366-7. 100
Justice S Rares, ‘Competition, Fairness and the Courts’ (2014) 39 Australian Bar Rev 79 at 79, 80. 101
See B Fisse, ‘The Proposed NZ Anti-Cartel Law: A Key-Point Comparison’ (2013) at:
http://www.brentfisse.com/images/Fisse_Proposed_NZ_Anti-
Cartel_Law_Key_Point_Comparison_Competion_and_Consumer_Law_News_June_2013.pdf.
24
Report describes the NZ approach as ‘a useful illustration of how the law might be
simplified in Australia’.102
49. The Harper proposals differ in various respects from those in the Commerce (Cartels
and Other Matters) Amendments Bill 2014:
They appear to retain bid-rigging as a type of cartel provision.
The exemptions for joint ventures and supply agreements between competitors
bear no resemblance to the NZ provisions and, as defined in the Model
Legislative Provisions are unsatisfactory (see paragraphs 57-59 below).
No attempt is made to differentiate criminal exemptions from civil
exemptions.103
The collective bargaining exemption is a uniquely Australian species.
No clearance procedure is proposed.
A new block exemption procedure is recommended (Recommendation 39).
50. The amendments to the CCA proposed in the Harper Report would preserve:
the filigree concept of a ‘contract, arrangement or understanding’;
the atomistic precept of a ‘provision’ in a CAU; and
the term ‘purpose of a provision’ – this creates undue complication (the phrase
as currently interpreted in Australia relates to the subjective intention of the
party or parties who happen to be ‘responsible for introducing the
provision’104
) and, if interpreted as a test of subjective intentionality,105
lacks
economic grip.106
51. The Report does not examine the relevance or otherwise of a counterfactual analysis
of what the price to be charged would be without the price fixing provision.107
If a
102
Harper Report, 360. 103
See C Beaton-Wells and B Fisse, Australian Cartel Regulation (2011) 289. 104
Seven Network Ltd v News Ltd (2009) 262 ALR 160, 347–52 [859]–[887] per Dowsett and Lander JJ. 105
As it was in News Ltd v South Sydney District Rugby League Football Club Ltd (2003) 215 CLR 563,
573 [18] (Gleeson CJ), 581 [46] (McHugh J, but with reservations), 587 [65] (Gummow J), 638 [216]
(Callinan J). Cf. Kirby J: at 605 [127], 606 [130]. 106
See further D Robertson, ‘The Primacy of Purpose in Competition Law – Pt 2’ (2002) 10 CCLJ 11. 107
Contrast ACCC v CC (NSW) Pty Ltd (1999) 92 FCR 375, 413 [168] (Lindgren J) with ACCC v Pauls
Ltd [2003] ATPR ¶41-911 46 624–46 626 [117]–[128] (O’Loughlin J); ACCC v Australian Abalone
Pty Ltd (2007) ATPR 42-199 (where it was argued that the relevant prices were controlled by
international market forces); N Hutley, ‘Challenging the Australian Competition and Consumer
25
counterfactual analysis is relevant when determining whether or not a cartel provision
controls a price the practical effect would be to make the prohibition against price
fixing next to useless.
52. Recommendation 27 tightens up the meaning of ‘likely’ for the competition condition
under s 44ZZRD(4) that applies to the definition of a ‘cartel provision’. This
responds to the concern expressed that the test applied by the Federal Court in
Norcast v Bradken108
imposed too low a threshold, especially given the potential
exposure to criminal liability. The test applied in Norcast v Bradken asked merely if
there was a possibility (other than a remote possibility) that the two relevant parties to
the CAU would be in competition with each other.
53. The repeal of the prohibitions relating to an ‘exclusionary provision’ as defined by s
4D is overdue. This repeal should have occurred in 2009 as part of the cartel
amendments to the CCA. Instead, the definition of a cartel provision under s
4ZZRD(3) was hobbled by excluding restrictions on the acquisition of goods or
services, and created a messy overlap between a cartel provision and an exclusionary
provision (both apply to restrictions on the supply of goods or services).
54. The proposed repeal of the prohibitions against price signalling and other types of
unilateral disclosure of competitively sensitive information109
has been widely
applauded. Division 1A of Part IV was drafted hastily and with little regard to
principle. It also introduced a bevy of complex provisions. Ultimately these
prohibitions have been applied only to the financial services sector, an ad hoc
approach that violates the Hilmer Review principle that prohibitions against anti-
competitive conduct should apply across all sectors of the Australian economy.110
Commission's Pleadings in Cartel Cases’ in M Legg (ed), Regulation, Litigation and Enforcement
(2011) ch 7. NB United States v Socony Vacuum Oil Co., 310 US 150, 220 (1940) (‘Any combination
which tampers with price structures is engaged in an unlawful activity. Even though the members of
the price-fixing group were in no position to control the market, to the extent that they raised, lowered,
or stabilized prices, they would be directly interfering with the free play of market forces. The Act
places all such schemes beyond the pale, and protects that vital part of our economy against any degree
of interference.’). 108
Norcast S.ár.L v Bradken Limited (No 2) [2013] FCA 235. 109
For one critique see C Beaton-Wells and B Fisse, ‘Australia’s Proposed Information Disclosure
Legislation: International Worst Practice’, Competition Policy International, Antitrust Chronicle, 30
August 2011. 110
The proposed block exemption procedure (Recommendation 39) is potentially prone to the same
objection.
26
55. The recommendation that concerted practices be prohibited if they have the purpose,
effect or likely effect of substantially lessening competition is problematic.111
One
concern is the absence of definition of ‘concerted practice’. Another is that there is no
requirement that any of the persons engaged in the concerted practice be in
competition with each other (or likely competition or competition or likely
competition but for the concerted practice). More fundamentally, the Harper
recommendation derives the concept from EU competition law but, unlike the
position there, fails to apply per se liability. In the EU, the concept of ‘concerted
practice’ applies not only where the practice has an anti-competitive effect under the
effect limb of Art 101(1) but also where per se civil liability arises under the ‘object’
limb of Art 101(1).112
The EU approach recognises that concerted practices (properly
defined and understood) are by their nature highly likely to restrict, distort or prevent
competition, just as conduct involving price fixing, output restriction, market
allocation and bid rigging is likely to have such effects. So-called ‘facilitating
practices’ are prevalent and exemplify one type of conduct that may give rise to a
concerted practice in circumstances where there is no provable ‘understanding’
between competitors.113
Remarkably, it is unlikely that the Harper recommendation
would rectify the problem that arose in Apco Service Stations Pty Ltd v ACCC,114
where the ACCC was unable to prove that the frequent communication of price
information by one competitor to another amounted to an understanding. A concerted
practice would be easier to establish than an understanding in such a case but the SLC
test under the proposed s 45M(1)(c) would present a considerable hurdle that would
not apply in the EU.
56. Recommendation 32 proposes that there be an exemption comparable to the
exemption of supply agreements between competitors under the proposed s 32 in the
NZ anti-cartel Bill. However, as discussed in paragraph 17 above, the drafting set out
in the Model Legislative Provisions (proposed s 45J) is unwieldy and difficult to
reconcile with Recommendation 23 on simplification.
111
See further C Beaton-Wells & B Fisse, Submission on the Competition Policy Review Final Report, 22
May 2015, 8-15, at: http://www.brentfisse.com/images/Beaton-Wells-and-Fisse-
_Submission_Final%20Report_250515_FINAL.pdf. 112
See J Faull and A Nikpay, The EU Law of Competition (3rd ed, 2014) 3.184. 113
See C Beaton-Wells & B Fisse, Australian Cartel Regulation (2011) 48-51. 114
(2005) 159 FCR 452.
27
Joint ventures/collaborative ventures115
57. Recommendation 27 would much improve the law on the exemption of joint venture
conduct from the cartel prohibitions. The joint venture exceptions under s 44ZZRO
and 44ZZRP are unduly restrictive and complex. The undue restrictions include the
requirement that the cartel provision be contained in a contract and that the exempted
activity be a joint venture for the production or supply of goods and services (and not
solely for the acquisition of goods or services).116
However, the joint venture
provisions in the Model Legislative Provisions are not satisfactory. This is the new
section proposed:
45I Joint ventures
(1) Sections 45C, 45D, 45G, and 45H do not apply in relation to a contract, arrangement or
understanding containing a cartel provision if:
(a) the parties to the contract, arrangement or understanding are in a joint venture for the
production, supply, acquisition or marketing of goods or services; and
(b) the cartel provision:
(i) relates to goods or services that are acquired, produced, supplied or marketed by
or for the purposes of the joint venture;
(ii) is reasonably necessary for undertaking the joint venture; or
(iii) is for the purpose of the joint venture.
58. The approach taken in s 45I is problematic:
the concept of a ‘joint venture’ is not defined (and is unclear as to whether or
not the concept as now inadequately defined in s 4J of the CCA is to be
retained);
the trifurcated drafting of the conditions under s 45I(1)(b) is difficult to
reconcile with Recommendation 23 that the cartel-related provisions of the
Act be simplified;
115
See further C Beaton-Wells & B Fisse, Submission on the Competition Policy Review Final Report, 22
May 2015, 1-8, at: http://www.brentfisse.com/images/Beaton-Wells-and-Fisse-
_Submission_Final%20Report_250515_FINAL.pdf. 116
See B Fisse, “New Zealand Government Proposes New Anti-Cartel Law with Collaborative Activity
Exemption that Highlights Flaws in Australian Joint Venture Exceptions” at:
http://www.brentfisse.com/images/Fisse_Proposed_NZ_collaborative_activity_exemption_01072013.p
df ; C Beaton-Wells & B Fisse, Australian Cartel Regulation (2011) 8.3.
28
the condition in s 45I(1)(b)(i) that the cartel provision relate to goods or
services that are acquired, produced, supplied or marketed by or for the
purposes of the joint venture is absurdly lax;117
guidance needs to be given on the condition in s 45I(1)(b)(ii) that the cartel
provision be reasonably necessary for undertaking the joint venture;
the condition in s 45I(1)(b)(iii) that the cartel provision be ‘for the purpose’ of
the joint venture is obscure; 118
the issue of sham joint ventures is not squarely addressed; and
the definition of the exemption does not differentiate between criminal and
civil liability.
59. Back to the drawing board – recommendations:
the concept of ‘joint venture’ be replaced with the concept of ‘collaborative
activity’;
the proposed s 45I(1)(b)(i) and (iii) not be adopted;
the proposed s 45I(1)(b)(ii) be reworded to read: ‘is reasonably necessary for
the collaborative activity and not for the dominant purpose of lessening
competition between 2 or more parties to the activity’ and the operation of
these tests be assisted by guidelines similar to those developed by the NZ
Commerce Commission;119
117
Because:
(1) Even the most blatant cartel provision in a ‘sham’ joint venture will ‘relate to’ goods or services
that are acquired, produced, supplied or marketed by or for the purposes of a joint venture.
(2) The term ‘relates to’ is broad and requires merely a connection between the cartel provision and
goods or services that are acquired, produced, supplied or marketed by or for the purposes of the
joint venture.
(3) A joint venture that is a ‘sham’ in the sense of being created predominantly for the purpose of
lessening competition between the parties to the venture is still a ‘joint venture’. 118
See C Beaton-Wells & B Fisse, Australian Cartel Regulation (2011) 8.3.4. 119
Revised draft of August 2014 at: http://www.comcom.govt.nz/business-competition/guidelines-
2/competitor-collaboration-guidelines/ See further J Land, ‘Joint Ventures and the Collaborative
Activity Exemption’, 24th Annual Workshop of the Competition Law and Policy Institute of New
Zealand, 2 August 2013; J Land, ‘Joint Ventures and the collaborative activity exemption’ [2014] New
Zealand Law Journal 190; J Land and A Schiff , ‘Analysing Collaborative Activities’ [2014] New
29
the collaborative activity exemption in the context of cartel offences be subject
to a defence of genuine belief that the cartel provision is reasonably necessary
for the collaborative activity (with an evidential burden of proof on the
accused);120
and
the proposed s 45I(1) be revised to provide that the prohibitions/offences do
not apply to a corporation that makes a CAU containing a cartel provision or
gives effect to a cartel provision in a CAU where the corporation and one or
more of the other parties to the CAU participate in a collaborative activity and
the cartel provision is reasonably necessary for the collaborative activity; the
wording in s 45I(1)(a) should be deleted and replaced by a definition of
‘collaborative activity’ along the lines of Commerce (Cartels and Other
Matters) Amendment Bill 2011 (NZ), proposed s 31(2).
VI Mergers
Harper Report recommendations
60. Two Recommendations are made:
Recommendation 25 — Definition of market and competition
The current definition of ‘market’ in section 4E of the CCA should be retained but the current
definition of ‘competition’ in section 4 should be amended to ensure that competition in
Australian markets includes competition from goods imported or capable of being imported,
or from services rendered or capable of being rendered, by persons not resident or not carrying
on business in Australia.121
Recommendation 35 — Mergers
There should be further consultation between the ACCC and business representatives with the
objective of delivering more timely decisions in the informal merger review process.
The formal merger exemption processes (that is, the formal merger clearance process and the
merger authorisation process) should be combined and reformed to remove unnecessary
restrictions and requirements that may have deterred their use. The specific features of the
Zealand Law Journal 230; J Land, ‘The Case for Pro-Competitive Collaborations’, NZ Productive
Markets Forum - Developments in Competition Law, Policy and Regulation, Nov 2014. 120
This avoids the concept of ‘honest belief’ as used in the proposed Commerce Act s 82B(2)(a) under the
NZ anti-cartel Bill. ‘Honesty’ like ‘dishonesty’ is a populist term that admits spurious defences; see C
Beaton-Wells & B Fisse, Australian Cartel Regulation (2011) 2.4.1. 121
The need for this change has been questioned on the ground that the current definition of ‘competition’
in the CCA includes competition from actual and potential imports into Australia.
30
review process should be settled in consultation with business, competition law practitioners
and the ACCC.
However, the general framework should contain the following elements:
• The ACCC should be the decision-maker at first instance.
• The ACCC should be empowered to authorise a merger if it is satisfied that the merger
does not substantially lessen competition or that the merger would result, or would be
likely to result, in a benefit to the public that would outweigh any detriment.
• The formal process should not be subject to any prescriptive information requirements,
but the ACCC should be empowered to require the production of business and market
information.
• The formal process should be subject to strict timelines that cannot be extended except
with the consent of the merger parties.
• Decisions of the ACCC should be subject to review by the Australian Competition
Tribunal under a process that is also governed by strict timelines.
• The review by the Australian Competition Tribunal should be based upon the material
that was before the ACCC, but the Tribunal should have the discretion to allow a party to
adduce further evidence, or to call and question a witness, if the Tribunal is satisfied that
there is sufficient reason.
Merger review processes and analysis would also be improved by implementing a program of
post-merger evaluations, looking back on a number of past merger decisions to determine
whether the ACCC’s processes were effective and its assessments borne out by events. This
function could be performed by the Australian Council for Competition Policy (see
Recommendation 44).
61. There are also various findings on issues raised in submissions:
The case for amending the law to cover creeping acquisitions is not
sufficiently strong.122
It would be inappropriate to co-ordinate the timing of the different merger
approval processes that exist under Australian law (eg foreign investment,
media diversity and financial regulator approvals).123
Private parties should not be immunised from the risk of an adverse costs
order in connection with merger proceedings, but consumer perspectives are
important to decisions about mergers and the proposed new merger
122
Harper Report, 18.2. 123
Harper Report, 18.3.
31
authorisation process will provide improved opportunities for third parties,
including consumers and their representatives, to be heard.124
The clearance application form published by the Commerce Commission in
June 2014 is a ‘useful illustration’ of the approach proposed for changing the
formal merger approval process.125
Comments – mergers
62. The Harper Report preserves the existing informal review process without doing
much about the issues of transparency and timeliness that arise in complex cases. The
informal clearance process appears to be a sacred cow in Australia. There seems to be
little prospect of moving away from a dual informal/formal system in favour of the
formal system of the kind that operates in NZ.126
The formal review process has been
a dead letter in Australia since its inception in 2007 but the changes proposed in the
Report are significant and would make formal review more attractive. For those who
take the informal route the price paid will continue to be limited transparency or non-
transparency of submissions opposing a merger or concerns of the ACCC that warrant
further submissions by the parties seeking clearance.
63. The Review Panel considered that ‘overall the merger provisions of the CCA are
working effectively’127
and did not recommend changes to the substantive law apart
from Recommendation 25 (purported need to clarify that ‘competition’ includes
import competition).128
However, there are some loose ends. In particular:
The meaning of ‘substantial’ in the SLC test is vague and the ACCC Merger
Guidelines (2008) offer limited guidance;129
see Section IV above.
124
Harper Report, 18.4. 125
Harper Report, 331. 126
Contrast the proposal advanced in Herbert Smith Freehills, Competition Policy Review Submission, 17
June 2014, at: http://competitionpolicyreview.gov.au/files/2014/06/HSF.pdf 127
Harper Report, 332. 128
A far simpler approach, if clarification be needed, would be to define competition as including actual
and potential import competition. 129
See ACCC, Merger Guidelines (2008) [3.5] (The precise threshold between a lessening of competition
and a substantial lessening of competition is a matter of judgement and will always depend on the
particular facts of the merger under investigation. Generally, the ACCC takes the view that a lessening
of competition is substantial if it confers an increase in market power on the merged firm that is
significant and sustainable. For example, a merger will substantially lessen competition if it results in
the merged firm being able to significantly and sustainably increase prices) at:
https://www.accc.gov.au/publications/merger-guidelines.
32
When is a substantial lessening of competition ‘likely’? Three different tests
emerged from the Metcash cases in 2011 and it is uncertain which should
apply.130
The ACCC Merger Guidelines take a narrow approach to behavioural
undertakings.131
Is that approach unduly restrictive?
What framework should apply to the analysis of unilateral and coordinated
effects in the case of acquisition of minority shareholdings?132
What is a ‘maverick firm’ and what is the significance of a maverick firm
when applying the SLC test? 133
The concept of a provision that provides ‘indirectly’ for the acquisition of
shares or assets in s 44ZZRU and s 45(7) is opaque and, unlike US antitrust
law, does not indicate the extent to which the parties to a proposed merger
may coordinate their conduct before closing.134
Unscrambling a consummated merger that breaches s 50 may be difficult or
impossible. What lessons are there to learn about the use of timing
agreements, commitments not to close, and ‘hold-separate’ agreements in
order to reduce or avoid the need later to seek divestiture?135
The relationship between s 50 and the proposed s 46 may need to be clarified.
A number of creeping acquisitions may be ‘conduct’ within the meaning of the
proposed prohibition against misuse of market power. Is that intended?
130
See D McCracken-Hewson, ‘How likely is “likely”? Metcash, counterfactuals and proof under s 50’
(2012) 40 ABLR 363. 131
See Merger Guidelines (2008) [20] (‘Generally, behavioural undertakings are only likely to address the
ACCC’s competition concerns if they foster the development or maintenance of enduring and effective
competitive constraints within a short and pre-specified period of time. It is particularly rare for the
ACCC to accept behavioural remedies that apply on a permanent basis due to the inherent risk to
competition combined with the monitoring and enforcement burden such remedies create.’). Compare
US DOJ, Antitrust Division Policy Guide to Merger Remedies (2011) IIB, at:
http://www.justice.gov/sites/default/files/atr/legacy/2011/06/17/272350.pdf ; S Waller, ‘Access and
Information Remedies in High Tech Antitrust’ (2012) 8 Jnl of Competition Law & Economics 575. 132
See C Arnott, ‘Analysing the competition impact of partial acquisitions — Sky/ITV as a case study’
(2010) 18 Competition & Consumer Law J 1. A current example is the proposed acquisition by Foxtel
of a 15% interest in Network Ten, a free-to-air TV rival. 133
See Ben Morawetz, ‘Identifying and evaluating mavericks in Australian and US merger analysis’
(2014) 42 ABLR 292. 134
See C Beaton-Wells & B Fisse, Australian Cartel Regulation (2011) 301-302. 135
See K Fenton, ‘Review of Consummated Transactions: Perspectives from Recent U.S. Experience’,
Competition Matters 2015: Competition and Regulation Conference, Wellington, 24 July 2015.
33
VII IP and Competition Law
Harper Report recommendations
64. There are three Recommendations of note:
Recommendation 6 — Intellectual property review
The Australian Government should task the Productivity Commission to undertake an
overarching review of intellectual property. The Review should be a 12-month inquiry.
The review should focus on: competition policy issues in intellectual property arising from
new developments in technology and markets; and the principles underpinning the inclusion
of intellectual property provisions in international trade agreements.
A separate independent review should assess the Australian Government processes for
establishing negotiating mandates to incorporate intellectual property provisions in
international trade agreements.
Trade negotiations should be informed by an independent and transparent analysis of the costs
and benefits to Australia of any proposed intellectual property provisions. Such an analysis
should be undertaken and published before negotiations are concluded.
Recommendation 7 — Intellectual property exception
Subsection 51(3) of the CCA should be repealed.
Recommendation 13 — Parallel imports
Restrictions on parallel imports should be removed unless it can be shown that:
• the benefits of the restrictions to the community as a whole outweigh the costs ; and
• the objectives of the restrictions can only be achieved by restricting competition.
Consistent with the recommendations of recent Productivity Commission reviews, parallel
import restrictions on books and second-hand cars should be removed, subject to transitional
arrangements as recommended by the Productivity Commission.
Remaining provisions of the Copyright Act 1968 that restrict parallel imports, and the parallel
importation defence under the Trade Marks Act 1995, should be reviewed by an independent
body, such as the Productivity Commission.
65. Recommendation 6 has been acted upon. A review by the Productivity Commission
was announced on 18 August 2015.136
136
See IP Australia, ‘Productivity Commission Inquiry into Australia’s IP arrangements’ 25 August 2015,
at: http://www.ipaustralia.gov.au/about-us/news-media-and-events/latest-news-listing/Productivity-
Commission-Inquiry-into-Australias-IP-arrangements.
34
Comments on Recommendation 7
66. Section 51(3) now exempts certain types of transactions involving IP from the cartel
prohibitions and the prohibitions against anti-competitive agreements and exclusive
dealing. The exemption covers certain conditions in licences or assignments of IP
rights in patents, registered designs, copyright, trademarks and circuit layouts. The
exemption does not apply to the prohibitions relating to misuse of market power and
resale price maintenance. Nor does it cover the transfer of IP rights, whether by
licence or assignment.
67. In recommending the repeal of s 51(3), the Review Panel took the position that
commercial transactions involving IP rights, including the assignment and licensing
of such rights, should be subject to the CCA in the same manner as transactions
involving other property and assets. Equation of IP rights with other types of property
rights strikes a now familiar chord.137
68. The Harper Report claims that Recommendation 7 is consistent with the approach
adopted in other major jurisdictions:138
Most comparable jurisdictions have no equivalent to subsection 51(3). None of the US,
Canada or Europe provide an exemption from competition laws for conditions of IP
transactions. In those jurisdictions, IP assignments and licences and their conditions are
assessed under competition laws in the same manner as all other commercial transactions. The
courts in those jurisdictions distinguish between competitively benign and harmful IP
transactions, taking account of all relevant circumstances of the transaction and the conditions
imposed. There is no evidence that this has diminished the value of IP rights in those
countries.
However, under US law and EU law, ‘the relevant circumstances of the transaction’
include the efficiencies served by the transaction and not merely the lessening or
increasing of competition.139
The operation of the rule of reason in those jurisdictions
137
See I Eagles and L Longdin, ‘Competition in Information and Computer Technology Markets:
Intellectual Property Licensing and s 51(3) of the Trade Practices Act’ (2003) 3 Queensland University
of Technology LJ 31. For the view that it is misleading to equate IP with other types of property see I
Lianos, ‘A Regulatory Theory of IP: Implications for Competition Law’ (2008) at:
https://www.ucl.ac.uk/cles/research-paper-series/research-papers/cles-1-2008. 138
Harper Report, 109. 139
See Federal Trade Commission and the US Department of Justice, Antitrust Enforcement and
Intellectual Property Rights: Promoting Innovation and Competition (2007) at:
http://www.justice.gov/sites/default/files/atr/legacy/2007/07/11/222655.pdf; Federal Trade
Commission and the US Department of Justice, Antitrust Guidelines for Collaborations Among
Competitors (2000) at: https://www.ftc.gov/sites/default/files/documents/public_events/joint-venture-
35
is not examined. Yet it is the rule of reason that largely explains why the value of IP
rights has not been diminished for example in the US by the general application of
competition prohibitions to IP-related conduct.140
69. The Report states that IP licences should be exempt from the per se cartel prohibitions
‘insofar as they impose restrictions on goods or services produced through application
of the licensed IP’.141
However, they should contravene the Act if ‘they have the
purpose, effect or likely effect of substantially lessening competition’.142
The Model
Legislative Provisions do not provide any specific carve-out for IP licences. The
intention is that IP licences would come within the proposed exemption for vertical
supply agreements (proposed s 45J) (Recommendation 27).
70. The repeal of s 51(3) would get rid of a cartel-related loophole:143
Consider the cross-licensing escape route created by s 51(3). Assume that A and B are competitors
and that each owns commercially significant patents. A licenses its patents to B for exclusive use in
territory X. B licenses its patents to A for exclusive use in territory Y. An effect of this cross-
licensing is that A and B do not compete against each other in territory X or territory Y but there is
no non-compete clause in the licensing agreements. If carefully structured, this kind of arrangement
can attract the exemption under s 51(3). A territorial restriction of the kind envisaged comes within
the likely meaning of the requirement that the licensing condition must ‘relate to’ ‘the invention to
which the patent . . . relates or articles made by the use of that invention’. The exemption under s
51(3) is not precluded by the fact that A and B are competitors or likely competitors. In the
example given, there is no non-compete clause: the only cartel provision is that embodied in the
licensing condition that each party has imposed on the other.
71. Two safeguards against overreach by Recommendation 7 are envisaged. The first is
exemption via authorisation or notification:144
IP licensing or assignment arrangements that are at risk of breaching Part IV of the CCA
(which covers anti-competitive practices), but which are likely to produce offsetting public
benefits, can be granted an exemption from the CCA through the notification or authorisation
processes.
The second safeguard is the block exemption mechanism:145
hearings-antitrust-guidelines-collaboration-among-competitors/ftcdojguidelines-2.pdf; J Faull and A
Nikpay, The EU Law of Competition (3rd ed, 2014) ch 10, C. 140
See eg Federal Trade Commission and the US Department of Justice, Antitrust Enforcement and
Intellectual Property Rights: Promoting Innovation and Competition (2007) at:
http://www.justice.gov/sites/default/files/atr/legacy/2007/07/11/222655.pdf. 141
Harper Report, 110. 142
Harper Report, 110 143
C Beaton-Wells & B Fisse, Australian Cartel Regulation (2011) 313. 144
Harper Report, 110.
36
.. the block exemption power recommended by the Panel (see Recommendation 39) could be
used to specify ‘safe harbour’ licensing restrictions for IP owners. As the ACCC notes:
Should a block exemption provision be introduced, it could be used to clarify the scope of
permissible conduct relating to the exercise of intellectual property rights, thereby
providing additional certainty for businesses. 146
72. Submissions about compliance costs in the event of repeal of s 51(3) receive little
sympathy:147
Concerns expressed in submissions about business uncertainty and increased compliance cost
likely to arise from repeal .. do not weigh heavily with the Panel. The competition law, and
competition policy generally, are of fundamental importance to the welfare of Australians. All
sectors of the economy should be exposed to and disciplined by the competition law, despite
the necessary compliance cost that entails. The economic benefits of increased competition
almost always outweigh the compliance costs.
73. ACCC guidelines are recommended in the context of misuse of market power
(Recommendation 30) and those should canvas refusals to license IP. However, there
is no recommendation that ACCC guidelines be developed to explain and clarify the
application of competition law to other IP-related conduct, including the licensing and
cross-licensing of patents.148
Contrast the useful IP guidelines issued by the FTC and
DOJ in the US149
and those underway in Canada.150
145
Harper Report, 110. 146
ACCC, Submission to the Competition Policy Review – Response to the Draft Report, 24 Nov 2014,
22. 147
Harper Report, 110. 148
Consider the then useful but now outdated guidance in TPC, Application of the Trade Practices Act to
Intellectual Property, July 1991. 149
See Federal Trade Commission and the US Department of Justice , Antitrust Enforcement and
Intellectual Property Rights: Promoting Innovation and Competition (2007) at:
http://www.justice.gov/sites/default/files/atr/legacy/2007/07/11/222655.pdf; Federal Trade
Commission and the US Department of Justice, Antitrust Guidelines for Collaborations Among
Competitors, 2000, at: https://www.ftc.gov/sites/default/files/documents/public_events/joint-venture-
hearings-antitrust-guidelines-collaboration-among-competitors/ftcdojguidelines-2.pdf. 150
Canada, Competition Bureau, Intellectual Property Enforcement Guidelines, Draft June 2015, at:
http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/03935.html.
37
VIII Remedies, Sanctions and Enforcement
Harper Report recommendations
74. There are several key recommendations:
Recommendation 41 — Private actions
Section 83 of the CCA should be amended so that it extends to admissions of fact made by the
person against whom the proceedings are brought in addition to findings of fact made by the
court.
Recommendation 53 — Small business access to remedies
The ACCC should take a more active approach in connecting small business to alternative
dispute resolution schemes where it considers complaints have merit but are not a priority for
public enforcement.
Where the ACCC determines it is unable to pursue a particular complaint on behalf of a small
business, the ACCC should communicate clearly and promptly its reasons for not acting and
direct the business to alternative dispute resolution processes. Where the ACCC pursues a
complaint raised by a small business, the ACCC should provide that business with regular
updates on the progress of its investigation.
Resourcing of the ACCC should allow it to test the law on a regular basis to ensure that the
law is acting as a deterrent to unlawful behaviour.
Small business commissioners, small business offices and ombudsmen should work with
business stakeholder groups to raise awareness of their advice and dispute resolution services.
The Panel endorses the following recommendations from the Productivity Commission’s
Access to Justice Arrangements report:
• Recommendations 8.2 and 8.4 to ensure that small businesses in each Australian
jurisdiction have access to effective and low cost small business advice and dispute
resolution services;
• Recommendation 8.3 to ensure that small business commissioners, small business offices
or ombudsmen provide a minimum set of services, which are delivered in an efficient and
effective manner;
• Recommendation 9.3 to ensure that future reviews of industry codes consider whether
dispute resolution services provided pursuant to an industry code, often by industry
associations or third parties, are provided instead by the Australian Small Business
Commissioner under the framework of that industry code;
• Recommendation 11.1 to broaden the use of the Federal Court’s fast track model to
facilitate lower cost and more timely access to justice; and
38
• Recommendation 13.3 to assist in managing the costs of litigation, including through the
use of costs budgets for parties engaged in litigation.
Recommendation 26 — Extra-territorial reach of the law
Section 5 of the CCA, which applies the competition law to certain conduct engaged in
outside Australia, should be amended to remove the requirement that the contravening firm
has a connection with Australia in the nature of residence, incorporation or business presence
and to remove the requirement for private parties to seek ministerial consent before relying on
extra-territorial conduct in private competition law actions. Instead, the competition law
should apply to overseas conduct insofar as the conduct relates to trade or commerce within
Australia or between Australia and places outside Australia.
The in-principle view of the Panel is that the foregoing changes should also be made in
respect of actions brought under the Australian Consumer Law.
Recommendation 40 — Section 155 notices
The section 155 power should be extended to cover the investigation of alleged contraventions
of court-enforceable undertakings.
The ACCC should review its guidelines on section 155 notices having regard to the increasing
burden imposed by notices in the digital age. Section 155 should be amended so that it is a
defence to a ‘refusal or failure to comply with a notice’ under paragraph 155(5)(a) of the CCA
that a recipient of a notice under paragraph 155(1)(b) can demonstrate that a reasonable search
was undertaken in order to comply with the notice.
The fine for non-compliance with section 155 of the CCA should be increased in line with
similar notice-based evidence-gathering powers in the Australian Securities and Investments
Commission Act 2001.
Comments – remedies, sanctions and enforcement151
75. The proposed amendment to s 83 of the CCA152
would remove doubt about its
operation in the context of factual admissions and help to reduce the costs and risks of
proceedings brought by persons who may have suffered loss and damage by reason of
admitted contraventions. Several Federal Court decisions suggest that s 83 is confined
to findings of fact made by the court after a contested hearing.153
The Review Panel
151
For a critique of the Harper Report on private enforcement see C Beaton-Wells, ‘Private Enforcement
of Competition Law in Australia: Inching Forwards?’ 39(3) (2015) Melbourne University Law Review
(submitted). 152
The same recommendation was made 12 years ago in Australian Law Reform Commission, Principled
Regulation: Federal Civil and Administrative Penalties in Australia (2003) Report 95,
Recommendation 30-5. 153
ACCC v Apollo Optical (Aust) Pty Ltd [2001] FCA 1456 at [24]; ACCC v ABB Transmission and
Distribution Limited (No 2) [2002] FCA 588 at [51]; ACCC v Leahy Petroleum Pty Ltd (No 3) [2005]
FCA 265 at [118]; ACCC v Dataline.net.au Pty Ltd [2006] FCA 1427 at [107]. On one view this does
39
did not accept that settlements would be discouraged by making factual admissions
admissible:154
.. The decision to resolve an ACCC matter by admissions is a significant one that would
usually subject the respondent company to a financial sanction and adverse publicity. Having
taken that decision, it is unlikely that the respondent company would subsequently contest the
admitted facts in a follow-on proceeding.
.. Section 83 merely makes the admitted fact prima facie evidence of that fact in the follow-on
proceeding. The respondent company remains free, should it so choose, to adduce evidence in
the follow-on proceeding contrary to the admitted fact. Furthermore, admissions of fact in an
ACCC proceeding will rarely, if ever, address the question of loss and damage suffered by
market participants as a result of the contravening conduct. Accordingly, a plaintiff in a
follow-on proceeding would need to prove loss and damage against the respondent company
in order to recover compensation.
76. The improvements to small business access to remedies proposed under
Recommendation 53 further an important cause. However, the reception has not been
entirely favourable. The Law Council of Australia SME Committee has registered its
dissatisfaction:
While the SME Committee supports any efforts to improve access to justice for
small businesses, the Harper Review’s recommendation in this regard is very
disappointing. This recommendation does not provide small businesses with any
tangible legal rights.155
77. Recommendation 26 (extraterritoriality) is sensible. It removes the nexus of ‘carrying
on business’, which does not focus as it should on whether or not the conduct in issue
affects or relates to economic activity in Australia. It also removes the anachronistic
requirement of Ministerial consent.156
78. Recommendation 40 (on the s 155 power of investigation) would limit the extent to
which s 155 notice can be used in the context of emails and electronic data. The
Review Panel recognised that the compliance burden can be considerable:157
not matter very much given that such admissions will often be admissible under the uniform Evidence
Act s 81 (see Harper Report, 408). 154
Harper Report, 408. The ACCC changed its position to concede this. 155
Submission, 29 May 2015, 3 at http://www.lawcouncil.asn.au/lawcouncil/images/3002_-
_Competition_Policy_Review_Final_Report_SME.pdf: 156
This requirement was introduced in 1986, at a time when there was concern over the extra-territorial
reach of US competition law (the Westinghouse case) and many other countries did not have
competition laws. See Harper Report, 414. 157
Harper Report, 419.
40
The Panel understands the concerns expressed by business over the cost of compliance with
section 155 notices that require the production of documents. In the digital age, businesses
retain many more documents, such as emails, than was the case 20 years ago. As a
consequence, compliance with a section 155 notice may require electronic searches of tens of
thousands of documents, which can occasion very large expense.
The courts have recognised the cost of documentary searches and, over the last 10 years, have
modified the rights of discovery. For example, the Federal Court Rules 2011 (20.14) now
require a party to undertake a reasonable search for documents. In determining what is a
reasonable search, the party may take into account factors such as the number of documents
involved and the ease and cost of retrieving the documents.
The safeguard proposed is a defence to a ‘refusal or failure to comply with a notice’
under s 155(5)(a) that would be available to a recipient of a notice issued under s
155(1)(b) who can demonstrate that a reasonable search was undertaken in order to
comply with the notice.158
The ACCC guidelines on s 155159
need to be revised in this
and other respects including the nature and limits of the s 155 procedure in the context
of informal merger reviews.160
79. The Harper Report does not try to address the question of why the introduction of
cartel offences in 2009 has yet to lead to a prosecution.161
Nor does it address the
criticisms that have been made of the ACCC Immunity Policy and the complementary
policy of the Commonwealth Director of Public Prosecutions.162
80. Effective enforcement depends on effective sanctions.163
The capacity of monetary
penalties to deter corporations from contravening the Act is open to doubt. The threat
of million or even billion dollar fines seems to have a limited deterrent effect, as is
suggested by the widespread manipulation of LIBOR and other rates by major
158
Harper Report, 420. 159
Section 155 of the Trade Practices Act, March 2008, currently under review, at:
https://www.accc.gov.au/publications/section-155-of-the-trade-practices-act: 160
See P Strickland, ‘Do we need a better way for reviewing mergers?’ (2012) 40 ABLR 143 at 158-160. 161
See the passing reference in Harper Report, 366-7. To date the cartel offences have been in hibernation.
The criminal prosecution of serious cartel conduct is said to be one of the ACCC’s top enforcement
priorities. There are many obstacles. One is the challenge of joint trial of a corporation and the
employees alleged to have participated in cartel conduct, partly because evidence obtained by reliance
on s 155 may be admissible against the corporation but not individuals. 162
See eg C Beaton-Wells, ‘Immunity for Cartel Conduct: Revolution or Religion? An Australian Case
Study’ (2014) 2 Journal of Antitrust Enforcement 126. See further C Beaton-Wells & C Tran (eds),
Anti-Cartel Enforcement in a Contemporary Age: Leniency Religion (2015). 163
This is a large subject. For one convenient point of entry see C Beaton-Wells and B Fisse, Australian
Cartel Regulation (2011) ch 11. See also Australian Law Reform Commission, Same Crime, Same
Time: Sentencing of Federal Offenders (2006) Report 103, 2006; Australian Law Reform Commission,
Principled Regulation: Federal Civil and Administrative Penalties in Australia (2003) Report 95; B
Garrett, Too Big to Jail: How Prosecutors Compromise with Corporations (2014).
41
financial institutions. Individual officers and employees often escape enforcement
action. These deficits are notorious but are not adverted to in the current ‘root and
branch’ review.
81. The Harper Report was published before the Full Federal Court decision in the
CFMEU case.164
The CFMEU decision means that a court should have no regard to
an agreed penalty figure put forward by the parties. The determination of penalty is a
judicial function and not a matter for settlement by the parties. On one possible view,
the implication is dire given that the vast majority of civil enforcement cases in the
past have been expedited through penalty settlements. However, on another possible
view, the decision is principled and may well be upheld by the High Court of
Australia on appeal.165
In the recent case of ACCC v Visa Worldwide Pte Ltd,166
where Visa was penalised $18 million for unlawful exclusive dealing and ordered to
pay costs of $2 million, the hearing on penalty proceeded smoothly on the basis of
agreed facts and submissions on penalty that avoided specifying the particular
quantum.167
It remains to be seen whether this experience is likely to be typical.168
164
Director, Fair Work Building Industry Inspectorate v Construction, Forestry, Mining and Energy
Union [2015] FCAFC 59. See also Barbaro v R; Zirilli v R (2014) 253 CLR 58 (approach to be taken
to submissions on penalty in criminal proceedings). For a useful discussion see P Renehan & P
Stevenson, ‘Purity but at what price? The application of Barbaro principles to pecuniary penalty
proceedings’, Competition Law Conference, Sydney, 24 May 2015. Compare NZ Law Commission,
Pecuniary Penalties, Report 133 (2014) 13.12-13.35. 165
There is an appeal: ‘Penalty deals issue headed for High Court’, AFR 17 July 2015, 32. 166
[2015] FCA 1020. See also ACCC v Chopra [2015] FCA 539. 167
Based on observation of the FCA penalty hearing in Sydney, 3-4 September 2015. 168
Compare the optimism expressed in ACCC v Visa Worldwide Pte Ltd [2015] FCA 1020 at [122] (‘It
should also perhaps be noted in this context that the sensible and reasonable settlement reached in this
matter puts paid to the somewhat dire warnings that followed the decision of the Full Court in Director,
Fair Work Building Industry Inspectorate v CFMEU to the effect that the inability of the parties to put
an agreed penalty figure or range to the Court would stifle settlement of matters such as this.’) with the
caution issued in Gilbert+Tobin, ‘Strange currencies: looking for meaning in the ACCC v Visa
settlement’ at: http://ecomms.gtlaw.com.au/rv/ff0022125115a7a3a1557b47d047b7679fab480d
(‘However, many cases will throw up considerably greater difficulties than this one under the approach
dictated by Director v CFMEU, particularly where the turnover of the defendant is much larger or
where, as is common in cartel cases, there are multiple contraventions. In such cases, the theoretical
maximum penalty could be much higher than in this case, and even if parties could agree that the
penalty should be in the lower, mid or upper range this could still leave considerable uncertainty as to
the actual monetary penalty to be imposed by the Court.’).
42
IX Conclusion
82. The Harper Report is a major landmark that should lead to many worthwhile changes
in Australian competition law. The review of competition policy in the Report should
also invigorate debate and spur action on other fronts including statutory barriers to
competition and competitive neutrality.
83. The Harper Report is much more lyre of Orpheus than sirens’ call. However, some
competition law recommendations are questionable. One sirens’ call is the proposal
on misuse of market power.169
Another is the latter-day legislative model advanced
for a new Australian joint venture exemption to cartel prohibitions.170
The Report
also proclaims the need for simplification without offering a good chart.171
84. Orpheus’ songs are said to have allured the trees, the savage animals, and even the
insensate rocks. Many of the Harper Report recommendations on Part IV allure.
However, there are gaps. These include silence on the meaning of ‘substantial’ in the
SLC test and drop out on what might be done in Australia to develop a rule of reason
test.172
85. Doubtless, NZ competition lawyers and law-makers will apply their own tests for
possible harmonies. They will see that the Harper Report does not fully correspond to
the political description of it as a ‘root and branch review’. They will compare the
proposals on cartels and mergers with what already has been achieved in NZ. They
will keep looking for workable possible alternatives to s 36 of the Commerce Act.
They will also ask whether ‘bonzai’173
reviews of the Commerce Act are likely to be
less time-pressured,174
more thorough and more productive of workable legislation
and useful guidelines.
169
See Section III above. 170
See paragraphs 57-59 above. Even after the Harper Review, Australia remains far behind NZ in
modernising the law in this area. 171
See Section II above. 172
See Section IV above. 173
The description in Russell McVeagh, ‘Final Report of Australian 'Root and Branch' competition review
released: A blueprint for NZ's 'bonsai' review of the Commerce Act?’ 1 April 2015, at:
http://www.russellmcveagh.com/Publications/ViewPublication/tabid/176/Title/final-report-of-
australian-root-and-branch-competition-review-released-a/pid/381/Default.aspx . 174
The time-frame imposed for the Harper Review was very short given the far-reaching scope of the
review. Compare eg the US Antitrust Modernization Commission , Final Report (2007) (3 year review
for less extensive subject matter).